Oil prices fell as producers disagreed over the need to reduce current production

WTI and Brent crude oil futures are trading lower while remaining in the same range as previous days as traders wait to see what OPEC + decision will make on production cuts. What these price dynamics suggest to us is indecision among investors and an imminent increase in volatility.

Brent crude fell 15 cents, or 0.3%, to $48.10 a barrel today. Brent crude jumped 1.8% yesterday. 

WTI crude rose 1.6 cents, or 0.4%, to $45.11 today after rising 1.6% in the previous session.

Update on the OPEC + Meeting

Previous negotiations between a group formed by OPEC and other allies such as Russia did not lead to any agreement. OPEC + has met this Thursday to discuss how their production policies should be for the next year. The objective will be to seek a solution to weak oil demand when the coronavirus pandemic has rampaged again.

Two OPEC+ sources told Reuters on Tuesday the group could move towards prolonging the current cuts, with a gradual increase in production in the following months.

On this subject, most investors expect the current cut of 7.7 million barrels per day, equivalent to 8% of world supplies, to be prolonged at least until March 2021.

On Wednesday, the Energy Information Administration reported that the United States’ oil reserves fell during the past week. Meanwhile, gasoline and distillates rose sharply due to the slower production of refineries to adapt to weak demand.

Specifically, the crude oil reserves fell by 679,000 barrels during the week ended Nov. 27. Analysts polled by Reuters forecasted a drop of 2.4 million barrels.

Meanwhile, gasoline reserves increased by 3.5 million barrels and distillates by 3.2 million barrels.

The price of a barrel of oil could drop to $5

According to analysts, initial price dynamics suggest that traders expect OPEC + to disappoint. They think prices could fall if OPEC+ decides to increase production. However, losses could be limited if they decide to extend the current cuts beyond March 2021.

The most bearish scenario for the market would be an increase in production and a prolongation of the cuts shorter than expected. In this case, analysts believe that the price of a barrel of oil may fall to $5.00 in the short term.

However, traders have been anticipating for weeks that OPEC + will extend its cuts in oil production of at least 7.7 million barrels per day until the end of March 2021. This scenario was based on the increase in coronavirus cases in the United States and Europe, which was supposed to affect demand negatively.

The problem with this scenario is the emergence of vaccines against COVID-19 and the supposed improvement they will have on the economy and fuel demand. This evolution has led some producers to have doubts about the need to take stricter measures, a view supported by Saudi Arabia, the leader of OPEC.